John Dugdale, associate at A&L Goodbody in Belfast, comments on a recent landmark decision on the occupation of a car park premises.

A recent landmark decision by the NI Court of Appeal regarding an agreement for the occupation of car park premises in Belfast city centre will be of significant interest to landlords and tenants in Northern Ireland.

Background

The case relates to car park premises at Winetavern Street / Gresham Street, Belfast. In 1997, the former owner entered into an agreement with Car Park Services Limited. Both parties were represented by solicitors during the negotiation of the agreement.

The agreement was labelled as a licence, and included the following terms:

The agreement contained no covenant of quiet enjoyment (i.e. the right to the undisturbed use and enjoyment of real property by a tenant or landowner) – a provision which would ordinarily be included by solicitors acting for parties who intended to create a lease.

In 2015, Car Park Services Limited applied for a new tenancy under Article 7 of the Business Tenancies (Northern Ireland) Order 1996. However, the owner of the car park premises opposed the application on the ground that, amongst others, the agreement was a licence and Car Park Services Limited did not, therefore, have a statutory right to apply for a new tenancy.

The Lands Tribunal agreed with the owner and decided that the agreement was a licence. The Court of Appeal was tasked with deciding whether the Lands Tribunal was correct in finding that the agreement created a licence and not a lease.

The 1996 Order

The 1996 Order is the legislation that governs security of tenure for business tenants in Northern Ireland. Under the 1996 Order, a business tenant has a right to a new lease of its premises at the end of the contractual term. If the landlord and tenant cannot agree on the terms of that new lease, the Lands Tribunal can determine the terms.

There is no escaping the statutory rules. Unlike the position in England & Wales, it is not possible to ‘contract out’ of the 1996 Order.

Lease or licence?

A licence does not qualify as a tenancy under the 1996 Order, so any party occupying premises under a licence will not benefit from security of tenure.

The test to distinguish a licence from a lease was established in the case of Street v Mountford. The key question is whether the agreement grants a right of exclusive possession. Even if an agreement is labelled as a licence, the courts are prepared to look beyond that label and find that a lease exists.

Decision

By a majority of 2:1, the Court of Appeal overturned the decision of the Lands Tribunal and decided that the agreement was a lease.

In spite of the parties’ stated intention that the agreement was a licence, the court concluded that the agreement granted exclusive possession. In the court’s view, labelling the agreement as a licence was, therefore, wrong.

Key factors for the court included a right for the occupant to use the entire site—described in the agreement as “all that plot of ground…” and not limited to, for example, the surface of the car park. The fact that the occupier was entitled to erect buildings and fences as required to insure the land (presumably on an annual basis) was also viewed as an indicator that pointed towards exclusive possession.

The landowner excluded himself from liability for personal injury, loss or damage. The court questioned how the occupier could be held solely liable for these if it did not exclusively occupy the car park.

In the court’s view, it was the occupant—and not the landowner—which had “territorial control” of the premises.

Discussion

This decision serves as a useful reminder that the label of an agreement as a licence is not determinative. A lease may still be created, in spite of the express terms of the agreement, if exclusive possession is granted.

The inability to ‘contract out’ of the 1996 Order is likely to remain a complicating factor in estate management and landlord and tenant negotiations.

Property owners may find that their agreements are subject to the protection of the 1996 Order, even if both parties state that their intention is to enter into a licence.

Landowners will need to be mindful of the risk of inadvertently creating a lease and the protection that this affords to the occupier when entering into an agreement for the occupation of business premises. Parties need to be particularly careful when their intention is to document nothing more than a short term arrangement.